Swirling moves across Europe

Diverse consequences of euro reformLeft moving back across the continent

by David Marsh

Wed 5 Jun 2013

Efforts to reform the European Union (EU) almost inevitably drive the three largest economies, Germany, France and the UK, in different directions. One result of swirling uncertainty across Europe is that left-leaning governments could be back in power across the continent’s largest economies in the next few years – with unpredictable consequences for the cohesion and staying power of the single currency.

One of the most significant effects of the euro imbroglio has been on a country that is not a member – the UK. Necessary but hotly-contested changes now under discussion to the constitutional set-up of the euro area has reinforced anti-Europeanism in the British Conservative party to the extent that prime minister David Cameron’s hold on office is now seriously weakened.

Cameron’s predicament is symptomatic of what is happening across the continent. As recently as 2011, center-right governments were in charge in all four of Europe’s largest economies. One consequence of the near-insoluble euro crisis could be that, in Germany, the UK, France and Italy, the left will be in control in two years.

Left-wing governments generally lean towards bankrolling hard-up states with additional subsidies, which could soften the contours of the creditors vs. debtors battle lines. But a switch away from economic orthodoxy could seriously undermine euro states’ efforts to win favour from financial markets.

A hint of the fragility of the present truce on the capital markets came at the weekend with publication of a report by former German constitutional judge on the legality of support purchases of government bonds by the European Central Bank.

Udo Di Fabio said Germany would have no choice but to withdraw from the euro if ECB actions were held to violate the statute under European law forbidding monetary financing of government deficits. The issue will be debated in a hearing at the constitutional court in Karlsruhe on 11-12 June in which the ECB and the German Bundesbank will provide opposing arguments on the case.

The euro’s travails have been just one factor prompting increased euroscepticism in the UK. Having launched a bid to break free from European rebels with his move in January to organise a referendum in 2017 on future participation in the EU, Cameron now finds himself on the ropes.

The Conservative-led government, ruling in a coalition with the fragile-looking Liberal Democrats, is reliant on opposition Labour party support to push through any legislation involving Europe – making Cameron’s administration highly vulnerable.

Last month, 114 Conservative MPs, more than half of Tory backbenchers, staged a major anti-Cameron rebellion by voting in parliament against the government’s plans to delay an EU referendum until the next legislature period. And anti-EU feeling is bound to be whipped up further by last week’s news that the European Commission is taking Britain to court over allegations that it discriminates against other EU nationals’ right to access benefits in the UK.

The picture is not that different in Germany. Chancellor Angela Merkel remains popular inside and outside her Christian Democrat party. But, like the Conservatives in the UK, she’s dependent for support in a coalition on a junior liberal party, in Germany’s case the Free Democrats – which is looking distinctly fragile. This could pave the way for a revived Red-Green coalition between the opposition Social Democrats and Greens after the 22 September 22 election.

The anti-euro Alternative für Deutschland (AfD) party will probably not muster the necessary 5% of votes necessary to gain seats in parliament. But, by threatening to take votes away from right-wing parties, it is already hardening the political debate in Germany – and could end up depriving Merkel of an overall majority she needs.

Confusion over euro policies was heightened last week when the European Commission rubber-stamped plans to give more time to countries like France to reduce government deficits to prescribed levels. But, in return for this concession, the Commission called for continuing reforms in areas like labor markets and pensions - prompting President François Hollande to reprimand the Commission for trying to ‘dictate’ to Paris.

At a meeting in Paris, Hollande and Merkel tried to patch up periodic rifts by calling for more economic governance in the euro area including a permanent full-time head of the Euro group of euro area finance ministers.

But that gesture was overshadowed by fierce criticism of Hollande from leading German Christian Democrats over the French president’s anti-Commission complaints.

Speaking in Paris, Merkel praised reforms by her predecessor Gerhard Schröder, Social Democratic Chancellor between 1998 and 2005. Merkel caused unplanned hilarity when she mistakenly referred to her host as ‘François Mitterrand’. France’s president between 1981 and 1995 was one of the European left’s great warhorses of the post-war period. In more ways than one, his spirit may be on the way back.